Facts to Describe the Current Situation .
Beliefs: How IS Agriculture? . .
Values: How SHOULD Agriculture Be? . .
Goals: Joint Desires of a Small Farm Sector
Felt Needs in the Small Farm Sector . .
Problem Identification: Financing Small Farms .

Agricultural policy formation by any governing body is a process. The
process described herein is followed to some extent by policy making bodies;
however, in many cases the process evolves haphazardly and differently for
each new problem without understanding and utilizing the important basic
elements of the process. This paper will present the policy formation process
as a theoretical construct and attempt to illustrate by example, applications
of the approach.
Specific objectives of this section are:
1. To present the concept of a flow of activities or process
leading to the development of agricultural policy.
2. To consider the basic inputs, situations, perceptions or
conditions common to policy formation.
3. To present the important stage of problem identification
as it relates to those basic inputs and ultimately policy
development and implementation, and
4. To briefly discuss policy and program implementation and
evaluation.

A Process Why?

Why is it important for agricultural policy makers to understand and
utilize the components, stages and flows of the policy formation process?
Doesn't policy making come natural? It seems natural. Yet unwarranted

Chris 0. Andrew is associate professor of food and resource economics at
The University of Florida.

-1-

AGRICULTURAL POLICY FORMATION
APPLIED TO SMALL FARM CREDIT CONCERNS

Chris 0. Andrew

The Process 04 AgAicultuuaa Policy Formation

Agricultural policy formation by any governing body is a process. The
process described herein is followed to some extent by policy making bodies;
however, in many cases the process evolves haphazardly and differently for
each new problem without understanding and utilizing the important basic
elements of the process. This paper will present the policy formation process
as a theoretical construct and attempt to illustrate by example, applications
of the approach.
Specific objectives of this section are:
1. To present the concept of a flow of activities or process
leading to the development of agricultural policy.
2. To consider the basic inputs, situations, perceptions or
conditions common to policy formation.
3. To present the important stage of problem identification
as it relates to those basic inputs and ultimately policy
development and implementation, and
4. To briefly discuss policy and program implementation and
evaluation.

A Process Why?

Why is it important for agricultural policy makers to understand and
utilize the components, stages and flows of the policy formation process?
Doesn't policy making come natural? It seems natural. Yet unwarranted

Chris 0. Andrew is associate professor of food and resource economics at
The University of Florida.

-1-

assumptions are often made because "we think that we know everything" when
"we really don't know anything" about a particular situation for which policy
is to be designed.
The need for a policy formation process can best be expressed as a need
for efLicient, timely, effective and re6popnive policies. Policy makers
seldom have the luxury of avoiding these criteria. Their performance will,
and should, be evaluated by those they intend to serve and the most common
criteria for evaluation are ef iZcency, timeLine.6, effectivenev6 and &uepon-
siveness. To be efficient and timely in developing effective and responsive
policies requires careful attention by policy making bodies to the basic
components, stages and flows of the policy making process. Each of these
criteria, while briefly discussed below, deserve considerable attention.
Efficiency involves how quickly yet accurately a policy making body can
respond to problems at a cost acceptable to those financing the policy making
function and the resulting programs. Efficiency requires a basic understanding
of the components, stages and flows of the policy making process. Often effi-
ciency requires a vast knowledge of society, the economy, and political and
governmental processes. Policy making units that are in continuous flux due
to changes in leadership and personnel may find efficiency lacking due to in-
sufficient continuity and knowledge within the unit itself.
Timeliness implies resolving a problem or reducing its impact before it
is too late or before massive and more complicated corrective measures become
necessary. Being timely in policy formation and implementation is like fight-
ing a disease after an early diagnosis as opposed to a very late diagnosis
when the disease reaches extensive proportions. For astute and visionary
policy makers, timeliness may mean anticipating future problems, externalities,
residual effects, and the "spinoff" from the present socio-economic behavior
of groups. With anticipation changes can be made to avert future problems.
This activity requires careful long range planning which is often ignored by
short term elected officials.
Effectiveness refers first to how well the policy making body can reach
decisions and second to how well these decisions and policies serve the needs
of the populace involved. The question is: "Does it work?" The government
structure within which the policy making body functions has a great deal to
do with effectiveness. Some programs are quite functional for some governments
yet fail for others. This is partially because basic characteristics of the

people served by varied governments often differ. It is also because some
governmental, administrative and management structures are more capable of
dealing with certain policies and problems than with others. Thus, the
transfer of policies and programs from one country or administrative unit to
another can prove exasperating.
Responsiveness also applies to the policy making body as well as to the
resulting policies. An efficient and effective body, well aware of the basic
conditions that explain its environment can respond with minimum time to major
and minor problems. The response or policy itself will then be or should be
responsive to the problem as identified and not some ill perceived notion about
the problem. The nature of the problem itself will dictate the type of respon-
siveness necessary. Price instability usually requires price policy with re-
sponsiveness extended over a period of time while the desire to outlaw a
particular price fixing arrangement requires a regulatory response to effec-
tively stop such activity.

An Overview of the Process

Differences in agricultural policies are as numerous as there are countries

in the world. Within countries agricultural policies differ from one political
party to the next, from region to region, commodity to commodity and from one
time period to another. Often programs designed to implement a specific policy
also differ substantially as do the policies. Yet the process of policy forma-
tion differs little among countries, political parties, regions, commodities
and time periods.
At this point one could ask "So What?" Can we not become too involved
in theory at the expense of understanding the significant differences between
the environments encompassing policy making bodies? Perhaps, but this is un-
likely because the diference,6 ie in the ptobtem gon. which policy resotutions
ae. sought white the piocess oa. iden.ti.ying problems and specifying policies
dif4eus Little between policy making boccie. As we begin to discuss specific
concepts and terminology, be alert to the importance of the process and not
so much to the actual terms used. We can find disagreement in the definition
of terms that are only employed herein to communicate about the process. Most
of the concepts blend together from one to the next as we proceed through the
process such that clear distinctions are elusive. But this is the very nature

people served by varied governments often differ. It is also because some
governmental, administrative and management structures are more capable of
dealing with certain policies and problems than with others. Thus, the
transfer of policies and programs from one country or administrative unit to
another can prove exasperating.
Responsiveness also applies to the policy making body as well as to the
resulting policies. An efficient and effective body, well aware of the basic
conditions that explain its environment can respond with minimum time to major
and minor problems. The response or policy itself will then be or should be
responsive to the problem as identified and not some ill perceived notion about
the problem. The nature of the problem itself will dictate the type of respon-
siveness necessary. Price instability usually requires price policy with re-
sponsiveness extended over a period of time while the desire to outlaw a
particular price fixing arrangement requires a regulatory response to effec-
tively stop such activity.

An Overview of the Process

Differences in agricultural policies are as numerous as there are countries

in the world. Within countries agricultural policies differ from one political
party to the next, from region to region, commodity to commodity and from one
time period to another. Often programs designed to implement a specific policy
also differ substantially as do the policies. Yet the process of policy forma-
tion differs little among countries, political parties, regions, commodities
and time periods.
At this point one could ask "So What?" Can we not become too involved
in theory at the expense of understanding the significant differences between
the environments encompassing policy making bodies? Perhaps, but this is un-
likely because the diference,6 ie in the ptobtem gon. which policy resotutions
ae. sought white the piocess oa. iden.ti.ying problems and specifying policies
dif4eus Little between policy making boccie. As we begin to discuss specific
concepts and terminology, be alert to the importance of the process and not
so much to the actual terms used. We can find disagreement in the definition
of terms that are only employed herein to communicate about the process. Most
of the concepts blend together from one to the next as we proceed through the
process such that clear distinctions are elusive. But this is the very nature

-4-

of the process itself.
The policy formation process is summarized in Table 1 and Figure 1 to
provide the basis for further discussion throughout this chapter. The con-
ceptual model in Table 1 lists the basic components, stages and flow in the
policy formation process. Seldom will the process follow precisely these
summaries. Stages in the process are sometimes omitted for various reasons,
some of which are political, time constraints, insufficient resources, and a
lack of skill. Some stages are accomplished yet not recognized as such by
policy makers. Thus, the table and the flow diagram may be viewed as a theo-
retical explanation of the policy formation process as well as applied guides
for developing specific agricultural policies.
At the core of the policy formation process are five interrelated and
individually complex stages. These specific stages are: 1. basic conditions
for goal specification; 2. problem identification based on felt needs and
appropriate theoretical models to help identify causes of problematic situa-
tions; 3. development and selection of policies; 4. implementation programs;
and 5. program evaluation. Components and flows related to the stages are
conceptualized in Table 1.
Basic inputS to the policy formation process are facts, beliefs, values,
goals and felt needs. These come from society itself and do not represent
fabrications by "representative" policy making bodies. The output of policy
making is a careful identification of problems, alternative solutions, action
programs, results, and performance criteria. I .. inputs and outputs of
policy formation are critical to success because each corresponds to essential
stages in the process. The process is not complete or possible without the
flow activities which provide for dynamic, reiterative and corrective measures.
Goal specification and problem identification are accomplished by communication
and consensus. Policies are developed through a continuous effort of research,
design, evaluation and selection or rejection of alternative policies and their
alternative action programs to resolve the problem. Then, as the selected
policies become action programs, evaluation of results is necessary and feed-
back of these results through the system provides for review and reidentifica-
tion of problems and policies to better meet the felt needs of society. Each_
of these components, stages and flows are defined more fully in the following
discussion and illustrated by example in the second half of the paper.

The basic building blocks or inputs for agricultural policy formation
are facts, beliefs, values, goals and felt needs. As in Figure 1, the process
of moving from facts, beliefs and values to goals and felt needs is an inter-
related progression of aggregation both for the individual and the group.
Not all individuals in a society can be identified with or represented
by selected facts, beliefs, and values. Conflicts therefore are common for
the individual and among individuals. Yet, goals of a society tend to aggre-
gate or unify similar beliefs and values to a common position. When by dis-
tortion governmental goals become sufficiently removed from those of society,
forced structural changes may result because goals when unmet become felt
needs. Policy makers determine which facts, beliefs, values and collective
goals and felt needs most apply to the problem at hand.
Meticulous understanding of the inputs to the policy formation process
reduces the risk of failure. Careful distinctions are made below between
these basic inputs while presenting how each relates to the next. Because
these terms experience numerous meanings in our language, they are discussed
below as they will be used throughout the paper. We fully realize that often
the terms themselves are not clearly distinguishable one from the other.
Facts, as the word implies, explain conditions in as near a quantifiable
form as possible. Price, production, consumption, population, income, farm
.size, trade, etc. data are only a few indicators where formal measurement of
a phenomena results in data or facts that become useful in policy formation.
Measuring factual situations often is a very difficult task requiring detailed
methods and numerous institutes and bureaus. Even then agreement as to the
validity of factual measures is difficult to achieve. Measurement methods
often become obsolete and fail to measure the precise characteristic or phe-
nomena desired.
Many factual situations and conditions are left entirely to the percep-
tion of individuals because formal measurement-by a central agency is impos-
sible. A multitude of facts are used in daily decision making by individuals
and groups which are not formally measured because such measurement would be
too costly, sometimes completely impossible, and often unnecessary. To be
more precise we work not with facts but with perceptions of facts. In this
sense there are no "absolute" facts but only "relative" facts. These "rela-

Basic Inputs for Goal Specification

The basic building blocks or inputs for agricultural policy formation
are facts, beliefs, values, goals and felt needs. As in Figure 1, the process
of moving from facts, beliefs and values to goals and felt needs is an inter-
related progression of aggregation both for the individual and the group.
Not all individuals in a society can be identified with or represented
by selected facts, beliefs, and values. Conflicts therefore are common for
the individual and among individuals. Yet, goals of a society tend to aggre-
gate or unify similar beliefs and values to a common position. When by dis-
tortion governmental goals become sufficiently removed from those of society,
forced structural changes may result because goals when unmet become felt
needs. Policy makers determine which facts, beliefs, values and collective
goals and felt needs most apply to the problem at hand.
Meticulous understanding of the inputs to the policy formation process
reduces the risk of failure. Careful distinctions are made below between
these basic inputs while presenting how each relates to the next. Because
these terms experience numerous meanings in our language, they are discussed
below as they will be used throughout the paper. We fully realize that often
the terms themselves are not clearly distinguishable one from the other.
Facts, as the word implies, explain conditions in as near a quantifiable
form as possible. Price, production, consumption, population, income, farm
.size, trade, etc. data are only a few indicators where formal measurement of
a phenomena results in data or facts that become useful in policy formation.
Measuring factual situations often is a very difficult task requiring detailed
methods and numerous institutes and bureaus. Even then agreement as to the
validity of factual measures is difficult to achieve. Measurement methods
often become obsolete and fail to measure the precise characteristic or phe-
nomena desired.
Many factual situations and conditions are left entirely to the percep-
tion of individuals because formal measurement-by a central agency is impos-
sible. A multitude of facts are used in daily decision making by individuals
and groups which are not formally measured because such measurement would be
too costly, sometimes completely impossible, and often unnecessary. To be
more precise we work not with facts but with perceptions of facts. In this
sense there are no "absolute" facts but only "relative" facts. These "rela-

tive" facts, or perceptions of a condition, blend with beliefs when the per-
ception assumes a judgement stance.
Beliefs, while based in fact, are founded in observations by individuals
and groups of what i6. Observations of what is, however, can differ signifi-
cantly from individual to individual and group to group so that disagreement
usually prevails. Some may hold the belief or judge that the number of very
poor farmers in a region is extremely high and that for this reason the re-
gion can not develop. Others may disagree. At this point accumulation of
"better" facts or data may broaden agreement within belief structures but
may not necessarily remove disagreement concerning interpretation of factual
conditions.
Values, contrary to individual and group feelings about what is, are
expressions of What Ahou & be. Values are ideals, moral expectations, and/
or cultural and social expectations that pass from generation to generation.
Changing needs and conditions which accompany socio-economic and political
evolution stimulate refinement and the focus of relevant values at any one
point in'time. Values in general often relate to the freedom to advance or
live under "favorable" economic, social and political conditions. Utterances
of how people should relate to each other are deep founded expressions of
values. Values then become very specific to the behavior of governments,
groups, and individuals and often are in conflict. These conflicts emerge
between groups and individuals as well as within the value structures of a
single group or of an individual.
Goals, express joint desires of individuals that become manifest in
specific desires held by groups of people and finally a country and its
government. Facts, beliefs, and values form the basis for countless desires
and finally more representative and select goals. Thus, goals serve as a
melting pot where desires are given to a process of ordering and weighting in
such a manner that priorities emerge to become specific goals which are ac-
tively pursued. These goals, while modified, often become expressed policy
goals. -Goals that become blocked and can not be met in the normal course of
events become the basis for the expression of felt needs. Thus, goalscarry
through the policy formation process, a dimension difficult to impose on
Figure 1.
Felt needs are the basis for problem identification and thereby serve as

a focal point in the policy formation process. Again, as with goals, felt
needs may be expressions of an individual, a group of a society. The need
must be "felt" in the sense that the originating party believes that change
can be realized, and it may arise from social tensions, doubts, conflicts,
failure to realize goals, concern for an anticipated occurance which might
be preventable, or the simple lack of knowledge if this knowledge is necessary
to contribute directly to resolution of another felt need. It is the strength
and importance of a felt need by a group of those people most powerful and/or
responsive in government which dictates direction for problem identification,
goal refinement and policy formation.

Problem Identification

Identification of problems for agricultural policy resolution evolves
from the interaction of facts, beliefs, values, goals, and felt needs sur-
rounding the agricultural sector. Problem identification is the key to
successful policy formation: Without adequate problem specification one
or more of the following conditions may result:
1. Conclusions concerning policy priorities and needs will
be drawn on the basis of inadequate and probably inaccu-
rate evidence.
2. More resources and more time will be devoted to policy
implementation than may be necessary and available.
3. The policy may lose favor and be discontinued with harm-
ful effects to future attempts at similar yet well planned
agricultural policies.
Thus, time spent in careful identification .of problems can well be the most
productive time spent by the policy maker. However, at this stage policy
makers should realize the value of expert advise about the particular problem
and seek such help and advise when it is available.
Problems appropriately specified for policy formation purposes have the
three following characteristics: First, they are based upon felt needs of
individuals, groups and societies. When problems are identified without ad-
herence to this condition, possibly because of either insufficient knowledge
of the situation or disregard due to a preconception, then policies designed

-10-

to meet these problems will lack impact. Second, the relationships expressed
in the problem are not hypothetical and are relevant to the specific needs of
the country and its citizens. Again, for effective problem resolution it is
best to "know", as opposed to "thinking that we know" what the problem is.
Third, the statements of the problem must be such that appropriate policy
resolutions can be developed and priorities can be identified within the
foreseeable resource restrictions imposed on the government. Some problems
may be impossible to resolve through overt policies and others may be re-
solvable but of such low priority that resolution is inconsequential given
the limited resources available. These resource restrictions include time,
funds, manpower, knowledge, and physical facilities. When a problem is so
large that no feasible solution appears possible, redefinition will be neces-
sary to allow for identification of priority segments of the problems that
are more aminable to resolution. At this point it may be necessary to dis-
tinguish those problems, or parts thereof requiring long run solutions, from
short run problems where "stop gap" measures may be appropriate.

Policy Development

At the outset a distinction between goals, policies and action programs
is essential. Policies are instruments designed for goal achievement and
become a vehicle by which governments and those they represent fulfill their
goals. To this vehicle numerous action programs are attached as means for
policy implementation. A goal to achieve improved welfare and income levels
for small farmers may include a policy to achieve a "small farm green revolution".
To this end the policy might include action program details possibly covering
supervised credit, improved market access, and improved access to and use of
land.
Policy development begins with careful problem identification. The
process is an interrelated set of activities that continue until the best
policies available within resource restrictions have been specified. The
four primary activities of the policy development stage are investigation,
design, evaluation and selection or rejection.
Investigation is most often a lacking or limiting ingredient in policy
formation. Problems often arise with such urgency that careful investigation
of the entire problematic situation is impossible. Thus, for most countries

-10-

to meet these problems will lack impact. Second, the relationships expressed
in the problem are not hypothetical and are relevant to the specific needs of
the country and its citizens. Again, for effective problem resolution it is
best to "know", as opposed to "thinking that we know" what the problem is.
Third, the statements of the problem must be such that appropriate policy
resolutions can be developed and priorities can be identified within the
foreseeable resource restrictions imposed on the government. Some problems
may be impossible to resolve through overt policies and others may be re-
solvable but of such low priority that resolution is inconsequential given
the limited resources available. These resource restrictions include time,
funds, manpower, knowledge, and physical facilities. When a problem is so
large that no feasible solution appears possible, redefinition will be neces-
sary to allow for identification of priority segments of the problems that
are more aminable to resolution. At this point it may be necessary to dis-
tinguish those problems, or parts thereof requiring long run solutions, from
short run problems where "stop gap" measures may be appropriate.

Policy Development

At the outset a distinction between goals, policies and action programs
is essential. Policies are instruments designed for goal achievement and
become a vehicle by which governments and those they represent fulfill their
goals. To this vehicle numerous action programs are attached as means for
policy implementation. A goal to achieve improved welfare and income levels
for small farmers may include a policy to achieve a "small farm green revolution".
To this end the policy might include action program details possibly covering
supervised credit, improved market access, and improved access to and use of
land.
Policy development begins with careful problem identification. The
process is an interrelated set of activities that continue until the best
policies available within resource restrictions have been specified. The
four primary activities of the policy development stage are investigation,
design, evaluation and selection or rejection.
Investigation is most often a lacking or limiting ingredient in policy
formation. Problems often arise with such urgency that careful investigation
of the entire problematic situation is impossible. Thus, for most countries

-11-

long term applied and basic research programs are necessary to provide a
continuous flow of useful background information to policy makers. Short term
research will then have a better chance of meeting the needs for immediate
information to develop policies where problems require immediate action.
Research as an activity in the policy formation process must occur not
only at the policy development stage but also as a means of helping society
express goals, felt needs, and problems. Through research programs, facts,
beliefs, and values become better known to policy making bodies.
Design of policies should specify objectives and action programs to
engage, modify and/or correct ramifications of the problem. The extent to
which specific and detailed programs are spelled out within the policy depends
on the nature of the problem, the policy making body itselI and the institu-
tion to which the instructions pass for implementation. Usually the policy
will be stated to provide direction for implementation while carefully de-
fining limits of the policy and action programs.
No set of rules could dictate all of the essential elements of policy
development. Careful consideration of the clientel or group most affected
by the problem and this group's relationships to others in society where
conflicts of interest may influence the potential success of an action pro-
gram is a starting place. Following this criteria will provide some assur-
ance that action programs will be accepted and the desired ends will be
achieved. The design itself should identify performance criteria such that
the policy is capable of self-evaluation through on-going structures so
that adjustments, when necessary, can be made as time and change dictate.
Evaluation of alternative policies and action programs must carefully
consider how well each policy alternative meets the specified conditions of
the problem as identified within the particular goals of the group for which
the policy has bee designed.. Another important criteria in evaluation is
to carefully consider the costs of implementation relative to the resources
available. Thus, a balance must be attained between costs and the ability
of each policy to optimally meet the needs specified in the problem.
Selection or rejection of each policy is an integral and self explana-
tory function of policy development. Careful research, design and evalua-
tion will make policy selection effective. It is often true that no single
policy in the set of the alternative policies can successfully resolve all
aspects of a problem without conflict amon varied groups within society.

-12-

These conflicts of interest often can not be resolved but may be minimized
if very careful attention is given to understanding the basic beliefs, values
and goals of all persons potentially affected by the policy, followed with
careful explanation of the proposed action programs.

Policy and Program Implementation

Numerous details must be carefully accounted for during implementation

of a policy through action programs. Seldom do policy making bodies completely
specify all of the details necessary for an agency to implement a policy.
Again, the research, design, evaluation and selection or rejection process must
occur but at a lower (agency) level. Often the formulation of these details
requires skills not held by policy makers. It is not the purpose of this
brief statement to enumerate the details of program development. Instead, a
brief discussion is dedicated to the role or implementation and evaluation
within the policy formation process. Even if a policy and the associated
action programs have been very well developed, without a well executed imple-
mentation plan, success will be minimal. And also, a well organized implemen-
tation plan can not be expected to succeed if the policy has not been care-
fully designed to resolve the problem to which it is directed.
A successful implementation agency is one that can communicate the needs
of its clientel to the appropriate policy makers and vice-versa. This agency
is in fact the change agent and a key element in the development process. As
agents of change the agricultural policy implementation agency must provide
integrated information to meet its clients needs. For example a specific agri-
cultural development program might consider the basic production technology
needs, marketing needs and finally, where possible, assistance with infrastruc-
tural needs. Thus, an implementation agency must also be involved with applied
research programs to help identify and meet some of the needs within the speci-
fic objectives of the agricultural policy.
Finally, the implementation agency must cooperate with those involved in
policy development in evaluating the impact or success of the policy. These
results must then be communicated back to the appropriate levels of government
so that adjustments can be made. where necessary. This may require careful re-
examination of the basic aspects of the problems or it may require some adjust-
ments at the policy development level.

-13-

Policy and Program Evaluation

It seems obvious to state that policy and program evaluation is closely
tied to the previous four stages in the policy formation process. Performance
criteria or expectations provide focus for the entire effort because they
evolve from goals and felt needs. One might conclude that evaluation should
be the least difficult stage in the process. Yet, before we become too secure
let us recognize that performance evaluation can be complex and is extremely
critical to further attempts at policy formation. In so doing, the complexity
of policy formation will receive further emphasis and summary.
Performance criteria,for program evaluation are detailed within the en-
abling policies and implementation programs as goals and objectives of the
policies and specific programs. Reasons for giving careful attention to these
criteria are:
1. General criteria.have a direct relationship tq goals and felt needs
thus acting as guides throughout policy formation and implementation.
2. The criteria serve as a basis for agreement such that responsibility
of a given policy is carefully designated. This precision will help
reduce inappropriate criticism when a policy is expected to resolve
problems for which it is not designed. Thus, in specifying the
performance criteria those expected to act within the action programs
will be aware of the expected results of their actions no more and
no less.
3. Results of the performance evaluation serve as guides to identifica-
tion of problems and reformulation of policies and programs. Thus
with and through performance criteria, research again provides
direction for further program development.
Since performance criteria must be grouped and individually oriented the
following questions must be re-emphasized in specifying criteria for program
evaluation.
1. What is the specific identity of clients and interest groups for whom
the policy is designed?
2. How is their environment or contribution to society expected to change
or be changed?
3. Who may be influenced adversely?

-14-

4. How will adverse affects become manifest?
5. What time frame is reasonable as a guide to realizing expected
changes?
6. What does the program cost financially and in resource use and
misuse?
7. Is the implementation program effective, efficient, and respon-
sive to give the policy a chance?
8. Are the performance criteria realistic?
9. Can specific measures of success be developed within the per-
formance criteria framework or has the policy and program failed
because of unnecessary complexity?
10. Was the problem identified, the policy formulated and the program
implemented such that basic and agreed upon performance criteria
are available and achieved?
Thus, with item 10 evaluation provides feedback so that the policy formation
process can begin once again when necessary.
Performance criteria do not play a passive role in the policy formation
process. Frequently they serve as areas for both agreement and disagreement.
One can often hear... "I thought that policy was supposed to ...instead it
seems we are worse off", and another ... "No, it did as I expected". And we
are left with varied interpretations. These situations, however, will always
emerge because policy itself, as the above process illustrates, begins with
varied facts, beliefs, values, goals and felt needs of people. These people
may or may not change in the course of implementing policies but they are
still individuals with unique perceptions and conflicting felt need situations.
An optimum policy for all is a utopian quest that can be quite disheartening.
People are the basic element to which agricultural policy is directed. Success
or failure of such policies requires very careful specification or realistic
performance criteria with those who are to be affected by government policy.
Even then, with the best laid plans, people do fail to develop workable poli-
pies for themselves and others. And where success prevails it may quickly
dissapate with time and social, economic and political change. So the quest
continues.

-15-

Agkicutiutal Potlcy ConceansA and Smatt Faamesu

Because an adequate supply of capital and credit is but one condition
necessary for agricultural development, this section is both general and
specific as an applied example of the agricultural policy formation process.
Though general, the role of agriculture in development can be somewhat unique
to each country and should be understood by those who intend to be effective
agricultural and non-agricultural policy makers.
Agricultural development programs are a chain of events with numerous
essential links and credit serves as but one link. Just as links are of
different sizes and strengths for chains of different purposes, the develop-
ment chain must entail links or programs suited to the unique problems of
a country. The form these programs take and their success depends upon the
effectiveness of the policy formation and implementation process. Basic
elements of this proc-ss were discussed in the previous section and.serve
as guides to the examples set forth in this chapter.
Due to a need to generalize, the following examples do pertain to the
experience of many countries yet most of the examples lack the depth and
reality common to a specific country. The remainder of the paper first
focuses on the general area of agricultural policy as the problem identification
stage is accomplished and then emphasis is placed on resolving an impled prob-
lem concerning the lack of credit. Credit policy formation serves as an example
and objective of the remaining portion of the section.
Objectives of this section include:
1. To specify by example the potentially important facts, beliefs,
values, goals and felt needs as basic guides to problem identifi-
cation;
2. To identify a small farm finance problem where credit might serve
an important role;
3. To present various means for defining small farmers; and
4. To discuss, by example, concerns when designing small farm
credit policy such as the target group, dimensions of the
credit need farm level objectives versus national objectives.

-16-

Encountering Basic Inputs

Recall that the basic inputs to the policy formation process are facts,
beliefs, values, goals and felt needs. Goal specification as a stage in the
process is accomplished as the first four inputs are identified while felt
needs contribute to the problem identification stage.

Facts to Describe the Current Situation

All of the facts wanted to describe a situation may not be readily avail-
able. For this reason survey data may be necessary. Such surveys are commonly
undertaken by census bureaus and numerous data gathering services as well as
by small task forces set in motion by specific agencies of government and
private entities. Currently in Guatemala, for example, ICTA (the institute
of Technical Agricultural Sciences) is gathering such data to better understand
small farm conditions and practices prior to launching a research and develop-
ment program which in turn may suggest needed changes in agricultural policy
[3].
Descriptive data measure various macro and micro phenomena and are neces-
sary as a means for documenting the nature of various natural, ecological,
economic, social and other relationships. Data relevant to agricultural de-
velopment might include the following non exhaustive lists:
*1. National and macro level data describe the setting within which
the agricultural sector labors:
a. Income: national, regional, state, sectors (urban, rural,
industrial, service, agricultural), subsectors (crops,
livestock, forestry), per capital (average, median, distribu-
tion), rate of change, savings and investments therefrom.
b. Employment and unemployment: sector, regions, occupations,
seasons, class, race.
c. Public investment shares to: social overhead facilities
(schools, roads, hospitals), sectors, regions.

MAn asterisk placed by numbered and lettered items denotes those issues
directly relevant to later discussions of small farm credit policy.

-16-

Encountering Basic Inputs

Recall that the basic inputs to the policy formation process are facts,
beliefs, values, goals and felt needs. Goal specification as a stage in the
process is accomplished as the first four inputs are identified while felt
needs contribute to the problem identification stage.

Facts to Describe the Current Situation

All of the facts wanted to describe a situation may not be readily avail-
able. For this reason survey data may be necessary. Such surveys are commonly
undertaken by census bureaus and numerous data gathering services as well as
by small task forces set in motion by specific agencies of government and
private entities. Currently in Guatemala, for example, ICTA (the institute
of Technical Agricultural Sciences) is gathering such data to better understand
small farm conditions and practices prior to launching a research and develop-
ment program which in turn may suggest needed changes in agricultural policy
[3].
Descriptive data measure various macro and micro phenomena and are neces-
sary as a means for documenting the nature of various natural, ecological,
economic, social and other relationships. Data relevant to agricultural de-
velopment might include the following non exhaustive lists:
*1. National and macro level data describe the setting within which
the agricultural sector labors:
a. Income: national, regional, state, sectors (urban, rural,
industrial, service, agricultural), subsectors (crops,
livestock, forestry), per capital (average, median, distribu-
tion), rate of change, savings and investments therefrom.
b. Employment and unemployment: sector, regions, occupations,
seasons, class, race.
c. Public investment shares to: social overhead facilities
(schools, roads, hospitals), sectors, regions.

MAn asterisk placed by numbered and lettered items denotes those issues
directly relevant to later discussions of small farm credit policy.

-17-

d. Trade (imports & exports): farm, non-farm, capital goods,
consumer goods.
*2. Micro data for subsectors, industries and firms help describe
the agricultural sector:
a. Farm geography: number, location, size, products, natural
resources, climatic conditions.
b. Farm production by type of product: volume, value, pro-
ductivity, inputs employed, technological indicators.
c. Farm returns: prices, costs, gross revenues, net revenues,
distribution (regions, products), trends, stability (cyclical,
seasonal).
d. Farm finance: credit available (to who, when, how much, from
where, interest charges, other terms), internal capital, capi-
tal productivity.
e. Agricultural distribution facilities: input suppliers, coopera-
tives, assembly markets, local markets, information sources,
storage facilities, transportation facilities.
f. Consumption and demand: per capital (value and volume by
products), response elasticitiess), urban and rural, domestic
and foreign.
Not all of the above data will be available nor necessary in every in-
stance. It is also falacious to assume that measures of the conditions listed
would be sufficient evidence for a thorough knowledge of a problematic situa-
tion. Survey data with a specific purpose or case analyses may be the only
means of achieving the specification necessary to measure some situations
leading to expressions of felt needs. Perceptual assessments in a qualitative
sense as opposed to more quantitative measures, are usually essential to a
strong data base. For example, study commissions sometimes fit in this cate-
gory along with national or local polls.

Beliefs: How IS Agriculture?

Beliefs, while often founded in facts and data, are perceptions by
individuals of what is. For this reason beliefs are numerous both for the
individual and among individuals. Perceptions of some conditions and situa-

-18-

tions, however, are in sufficient agreement to become central beliefs
held by groups. Sometimes these beliefs can be characterized as the con-
ventional wisdom about select situations and conditions.
Often beliefs concerning agriculture center around the process of
agricultural development. Some examples of beliefs held in various countries
are as follows:
1. Agricultural prosperity is necessary for a healthy and expanding
national economy.
a. Production technology provides greater output per man thus
freeing labor for non-agricultural development.
b. Productivity advances create a source of "inexpensive" food,.
at stable or declining relative prices.
*c. Declining income shares devoted to food expenditures releases
funds for savings, credit and direct investments as well as
for expansion of purchasing power to stimulate demand for
agricultural and non-agricultural goods.
d. An expanding agricultural sector itself provides a demand
stimulus to the remainder of the economy.
e. Agricultural exports provide needed foreign exchange for
various imports.
f. Improved nutrition is possible through balanced agricultural
development.
2. Rural resource use is an important concern for the agricultural sector
as well as the urban sector.
a. Equitable distribution or rural resources, primarily land and
water, is a basis for strengthening the rural-socio economic
system and providing for political stability.
b. Natural resource conservation, particularly soil and water, are
necessary to the future of a country.
c. Communication and education systems are necessary means for
strengthening the human resource base in rural areas.
3. Small farmers tend to be "left behind" by commercial agriculture
and the developing economy at large.
*a. Economic characteristics condusive to a lagging small farm:
sector include: low income and price elasticities for farm

-19-

products, market access difficulties for both improved technology
and farm products, insufficient scale to capture economies forth-
coming with development.
b. Growth then finds small farmers contributing to, yet not sharing
in, the rewards such that their incomes worsen, the farmers migrate
to urban areas, and because of insufficient training and opportu-
nities, join a restless unemployed pool to dampen national devel-
opment and threaten political stability.
*c. Relative to agricultural productivity advances, small farmers are
(good or bad) managers, and (do or don't) care about improving
their lot so they (are or aren't) as efficient as possible. Small
farmers are (good or bad) credit risks.
Other examples of beliefs could be listed which might be in conflict with
some of the above. Conflicts and differences are to be expected even in the
so called "conventional wisdom" because beliefs are opinions or perceptions
about how things are. These perceptions pertain to both factual and normative
situations where differences are common.

Values: How SHOULD Agriculture Be?

Values too differ substantially between individuals, groups and countries
and may be in conflict within a unified body (the individual, a group or a
political system). Beliefs and values are parallel for many important issues.
For each of the beliefs listed above, values could be identified relative to
a judgement of the "goodness" or "badness" of the situation described by the
belief. Many values common to agricultural people also are held by non-agri-
cultural people but possibly with alteration. Some basic values germane to
most agricultural people are presented below:
1. Numerous values center around the rights of individuals relative to
others and the society at large. These values suggest how individ-
uals and groups should relate to each other.
a. Basic individual freedoms "should be" honored including freedom-
of speech, freedom of religion, freedom from hunger, freedom
from suppression and violence and so on.
b. Equality "should be" achieved relative to human rights, economic
opportunity, political representation and so on. From these

values stem policies and programs of equal rights, welfare, and
public education.
c. Various subsets of related values support those of equality
in how individuals contribute to society and the economy. Some
values suggest that future rewards should be tailored to current
contributions. These values also support the next major value
of economic growth and who shares or "should" share in that
growth. Of course value conflicts are rampant in concerns of
equity.
2. Economic growth and development is highly valued by many countries
throughout the world as a combination of values held by their re-
spective citizens. Growth for the individual self in his or her
environment as well as that of an economy "should be" achieved as
opposed to the status quo or stagnation because as others grow
stagnation often implies a relative decline.
3. Stability and security are of great importance to many people and
can be in conflict with growth values. The desire to achieve sta-
bility through risk aversion, at it's extreme may lead to stagna-
tion and ultimately instability. The desire for stability includes
political, social and economic conditions. A preponderance of
governmental activity throughout the world is devoted to balancing
stability with growth.
4. Numerous values involve economic, social and political organizations.
These values are also related to those mentioned above.
a. In economic organization values encompass desires concerning
efficiency (labor, land and capital productivity "should be"
high), economic structure (competition "should be" fair,
access to economic opportunities "should be" free and equal),
control (free markets "are superior" to regulated markets,
resource use "should be" effective and conserving, the rights
*of private property "must be" honored), and who "should"
contribute to, regulate and receive rewards.
b. For social organization the relationships between church and
state are a fertile area for value expression and one of
significance in many agricultural settings. Religious values
specifically influence food production and consumption according

-21-

to various social and cultural practices. Meat consumption may
be one of the most controversial among groups throughout the
world. Some religions and cultures indoctrinate members of
society by suggesting that one "should not" eat cows, or in others
dogs and in still others horses while some indicate that certain
meats should or should not be eaten at particularly important
times of the year. General food preparation practices are highly
influenced by values and differ substantially among religious
and cultural groups.
c. Political organization too involves numerous values concerning
the way people should be represented and governed. Many govern-
mental systems are based on the value that each citizen "should
be" extended the opportunity to freely elect his or her leaders
and representatives at the national level as well as at the lowest
organizational level. Rural people may play a significant basic
role in political value structuring but often mechanisms for ex-
pression of rural values and needs are quite inadequate except
through violence or near violence.
5. Interpersonal and intergroup behavior in economic, social and political
encounters encompasses a vast set of values. Most basically these
relate to honesty, fair trade, and integrity. For example most believe
that what is borrowed "should be" returned according to agreements
made at the time of the loan and that misrepresentation in economic
and political transactions is wrong.

Goals: Joint Desires of a Small Farm Sector

Goals of the small farm sector are the melting pot for facts, beliefs and
values which express a set of joint desires held by small farmers and those
who work closely with them. In this manner the goals may or may not be satis-
factorily fulfilled at a given point in time. Dissatisfaction with goal real-
ization then is the stimulus to felt need expression which will be discussed
for small farmers in the next section.
Examples of small farmer goals are best expressed by farmers themselves.
Preparation of this paper has not provided a research opportunity to achieve
this expression. A group of leaders, however, who work with small farmers in

-22-

Bolivia were the first to attend a policy formation workshop where the present
approach was used and expressed the following set of goals as appropriate to
Bolivia. The order suggests moving from general goals (or possibly macro level
goals) to more specific (or micro) goals. They are:
1. To attain a more egalitarian society.
2. To increase per capital income.
3. To more fully integrate small farmers into the economy.
4. To make Bolivia self sufficient in food products.
5. To create agricultural surpluses for export.
6. To modernize the agricultural sector.
7. To improve access to production resources such as land through
colonization and tenure restructure.
8. To educate small farmers and their families.
9. To increase small farm incomes.
*10. To increase agricultural sector productivity.
*11. To develop infrastructure and improved coordination for input
and product markets.
*12. To provide permanent and appropriate technical assistance to small
farmers.
Other goals could be specified and each of the above goals need further
definition yet often it is not until felt needs arise and problems are identi-
fied that the full import of goals is realized. Then facts, beliefs and values
come to bear in providing further insights about the goals.

Felt Needs in the Small Farm Sector

The expression of joint felt needs by small farmers helps place priorities
on unfulfilled goals. As goals go unmet numerous felt needs arise, some with
greater intensity than others. The intensity of these needs suggests where
individuals and groups will seek change. The expanding pressure then manifests
itself in group action, orderly or disorderly, such that the government and
other responsible parties will take action to identify and resolve problems
bearing upon these felt needs.
Understanding felt needs by small farmers in less developed areas requires
careful listening and study. Too often, well meaning individuals of authority

-23-

assume that they know what these felt needs entail only to frustrate those
they wish to help. Due to the nature of felt needs it is difficult to express
examples because they are necessarily abstract unless we have a specific
group under consideration.
An expression of some commonly felt needs by small farmers may be express-
ed in the following manner:
WE NEED:
1. Leaders and problem solvers who will begin by understanding us,
our culture, our social relationships, our family concerns, and
our farming conditions.
2. Practical methods that we can afford for imporving our yields.
3. Security from the risk of hunger, loss of our productive re-
sources and similar family disasters caused by natural and
economic conditions beyond our control.
4. To know how to become active participants in a developing
economy.
$. Access to the economy both as producers and consumers.
These needs suggest only five areas of many where small farmers may per-
ceive the greatest difficiencies in goal realization. More basic needs could
be expressed in many small farm areas of the world. Life's basic health,
nutrition and housing needs are a driving force behind any grouping of less
basic needs simply because lesser goals help in achieving greater goals.
As expressed, the felt needs must be further elaborate before identifica-
tion of specific problems can be accomplished for which programmed policy
solutions will be attempted. The first need listed above is self explanatory
and acts as a guide to those that follow. Further elaboration might reveal
the following needs:
1. Technology designed to meet the soil, water, labor and financial
situation unique to our size. We need Ama2U JaAm technology.
*2. Greater price and income stability so that the risks of change
are reduced. We need jinancat l&tabiLty to achieve greater
productivity.
3. Information and education to better guide us as participants in
the economy, society at large and government. We need aeA46 to
t'alnung p/ogkam6 which allow our human resources to hold skills
in production and decision making comensorate with the demands

-24-

of a developing country.
*4. Access to improved family and farm inputs. We need Jarm supply
market. and financing (internal or external) to allow timely
use of inputs that can increase our productivity.
*5. Access to good outlets for our products. We need well coOa-
dinated and financed rutaw and urban market including trans-
portation, communication, and quality control systems which
adequately reflect consumer desires and prices sufficient to
cover production and marketing costs as a means for augmenting
our farm returns.

Problem Identification: Financing Small Farms

It is apparent from the refinement of the felt needs listed above that
one potential problem area might be in farm finance. There are others, and,
of course, most of the problems are interrelated.
A general overview of problems within and related to small farm develop-
ment might include:
1. A lack of technical assistance (technology itself, education and
extension) to small farmers resulting in minor productivity advances,
depressed income opportunities and a lagging domestic agricultural
(as opposed to export) sector in the national economy.
2. A highly skewed distribution of productive resources is causing
income distortion particularly as technical assistance becomes
more readily available and adaptable to larger farms than to smaller
farms.
3. Lack of financing for purchase and use of improve production and
marketing technology results in reduced rates of adoption and greater
risk concerns on the part of would be adopters thereby reducing their
ability to achieve potentials.
4. Weak marketing institutions and coordination arrangements for dis-
tribution of farm products cause double dampining effects of 1)prod-
uct and income losses, and 2) a weak demand stimulus characterized
by high urban prices yet low farm prices.
Now in pursuit of the felt need for improved farm Ifinance programs, we
turn to a specific definition of the problem. The statement in number 3 above

-25-

does not fully define the problem. Discussions to this point have been ela-
borated on various facts, beliefs, values, goals, and felt needs of small
scale agriculturists. Note that the asterisks placed by the numbered and
lettered items throughout early sections of this section denote those items
directly relevant to our problems. The statement should include this infor-
mation to give the problem proper perspective.
Thus, we would know something of the income, employment, public invest-
ment and trade conditions of the country. And for the farms, location, pro-
duction conditions, products, returns, financial bases, distribution facili-
ties and produce demand would be specified to the extent possible given time
and resources. Beliefs to support the role of credit were that 1) agricul-
tural productivity advances provide for declining income shares devoted to
food expenditures thereby releasing funds for savings, credit and direct in-
vestment, 2) small farmers are"left behind" because of unique adverse eco-
nomic conditions due to scale and the inelastic nature of demand for their
products and 3) small farmers are "good" or "bad" managers and credit risks.
Values particularly germane to the problem concern how individuals view
lending and repayment of loans. Goals most closely touched by the need for
credit are to advance small farm productivity, to develop necessary small
farm infrastructure and to provide technical assistance.
With this background the problem area becomes more meaningful. The
general dimensions of the problem have been specified such that the veracity
of the statement "lack of financing for purchase and use of improved tech-
nology results in reduced rates of adoption and greater risk concerns on
the part of would be adopters thereby reducing their ability to achieve
potentials" is confirmed.

Developing Credit Policy, 4ot Small Farmers

The four primary activities in policy development described in the first
section of this paper were investigation, design, evaluation and selection or
rejection. Each of these activities will be employed as they contribute to
the development of small farm credit policy. As noted in Table 1, Section II,
these activities draw upon the .problem identification, policy development, and
program implementation stages of the policy formation process.

-26-

Investigation: Who is a Small Farmer?

Who is this small farmer needing credit? Where is he located? What
are his income levels and sources? What commodities does he produce? What
other commodities are economically feasible for production under slight mo-
difications? What is his capital position? What levels of labor, capital
and land productivity is he experiencing? Is internal capital development
possible? How does he relate to the broader market for purchased inputs
and product sales? How is the small farm community doing relative to the
national economy? More questions could be asked about attitudes, education,
health, degree of general isolation, political participation, and others.
Thus, the early activity in policy development, after the problem has
been identified, is one of further gathering information to precisely describe
our client, or as so often termed, the target audience. To answer what, who
and where is the small farmer in need of credit assistance may well involve
some subjective criteria; yet guides for these criteria will likely evolve
from the problem identification stage. In that sense the stages and activi-
ties discussed in this section usually do not appear so distinct in practice.
Research or information gathering may occur throughout the process. Yet
at this point good definitions are essential to permit successful design
and implementation of policies. This knowledge must spring forth from
precise understanding of how small farm communities, families and indivi-
dual farmers deal with day to day decisions. Census data, arm chair debate,
and memories of that "one experience" won't provide the needed insight.
Being able to draw data and general knowledge from one who understands small
farmers is essential. If a person with in depth knowledge is not available
for consultation, short term research may be necessary to provide the base
for successful policy design.
The first task in gathering information necessary for establishing small
farm credit policy is to identify the small farmer as an individual or one of
a group of individuals, isolating him for the purpose of analysis, behavior,
and productive capacity. Are small farmers sufficiently separated from other
farmers and other rural problems so their situation can be separated from the
total rural category? Separating characteristics might include location,
farm size, and type of economic activity. In some countries all farms are
small with common problems: In other countries there is a great disparity

-27-

between large and small farmers and programs are designed to reduce this dis-
parity. The fact that some farmers, no matter what size, are prosperous,
should be useful to understanding the program needs for those who are small
and who have not prospered. It may mean that off-farm infrastructure such as
marketing and production institutions and facilities including roads, storage
bins, and railroads are adequate in the first case and inadequate in the
second. If successful small farmers are interspersed with unsuccessful ones,
lack of off-farm facilities and services probably is not the problem. Could
any program designed to help the poor farmer in this situation adequately
define the poorer farmer and set him off from prosperous farmers? Likewise,
should any program which defines a small farmer as one who tills five hectares
or less, rule ineligible for credit one who tills seven hectares?
It is obvious that no single measure of farm size should be universally
used to define a small farmer without considering other factors. Every country
tends to define small farmers in a different way. Different programs within
the same country will often use different criteria to define small farmers.
This is important, of course, from the credit recipient's standpoint. The
AID Credit Review of 1973 identified four basic types of'small farms [1].
A fifth group which was discussed was made up primarily of landless laborers
without ownership. The five groups were:
Group 1. Those operating a reasonably profitable commercial enterprises
with access to commercial credit. They might manage their farms
more efficiently or improve their profits, but credit is not the
reason for bad performance.
Group 2. Those which have the potential to become profitable enterprises
if access to technology, inputs, and markets at fair prices were
possible.
Group 3. Those which have the potential to become profitable enterprises
but will need special incentive subsidies for a specified period
of time.
Group 4. Those with such poor resources that improved access or even new
technology would not provide a viable farm enterprise capable of
supporting the farming unit without permanent subsidy.
Group 5. Landless farm laborers, garden plot farmers, etc. This poorest
group is beyond help and has no potential to be commercially
viable or support themselves through farming.

-28-

Size may or may not have a bearing on who is small, using this method
of classification. Many farm units in the Andean highlands of South America,
rice farmers in Nepal, share tenants in Ethiopia, farms in Bangledesh, and
many of the small plot farmers in Indonesia are examples of absolutely smaUl
farms. In some countries or regions, all farms are LeZativety smatt so any
definition confuses the issue by directing attention to those farms which are
extremely small or smaller than the average. Another meaning is a relative
one in which farm size is smat Tin compaAl60n with others in the region.
Southern Brazil, West Pakistan, Southern Europe and many developed countries
have examples of this kind.
Access also has been used as a defining characteristic. This definition
includes those farmers with little or no income who have limited access to
services or political power. Most developed countries classify farms by
gross sales of farm products -- the smallest ones are those which sell less
than a prescribed amount of products. This farmer, however, may or may not
have a low income depending upon his off-farm employment situation. Often
he is a part time farmer who derives most of his income from other sources.
These various criteria are best captured and expanded by Harrison and
Schwedel. They indicate that the literature focuses on six criteria concerned
with the definition of a small farm [2]:
1. Size. The small farm is defined by the size of the land holding.
2. Income .tAeam. This criterion recognizes that farm size is not
the same as wealth, therefore a small farm is defined on the basis
of the income it generates.
3. TraditLionaL modeAn agAicuLtuue. A dichotomy is set up where tradi-
tional agriculture identifies small farm agriculture.
4. Level o0 technology. Numerous theories of development tend to
characterize the traditional society as possessing a static tech-
nology with no or very slow, innovation. This concept has been
applied to agriculture to distinguish between the traditional or
small farm, and the modern commercial farm.
5. Organization of economic activity. A number of dimensions are used
for farm classification (e.g., ratio of family labor to hired labor,
decision-making, etc.)
6. DegLe.e o6 integration. This criterion seeks to measure the degree

-29-

of interaction and interdependence of the farm with its environment,
such as the amount of production sold compared with the portion with-
held for internal consumption.
In reviewing the above criteria, two points are clear: (1) the definition
of small farm agriculture has moved from a quantitiative measure to a problema-
tic statement reflecting a condition which is considered undesireable (i.e.,
little innovation); and (2) no single criterion adequately identifies small
farm agriculture. The trend in describing small agriculture is to use a multi-
dimensional criterion defined over a specific problematic range. It is also
evident that the very nature of the problematic situation will dictate which
small farm measurement criteria are most appropriate or of highest priority.
Thus, the income stream and asset position of a farming unit may be very help-
ful in defining a small farm for credit purposes.
Following the above rationale, the following is suggested as a working
definition. Small farm agriculture comprises those farms where: (1) the bulk
of the labor force, management, and capital come from the same household; (2)
production is either consumed on the farm and/or traded in local markets;
(3) the decision-making process is hampered by limited access to marketing
and political institutions; and (4) the farmers do not live much above a cul-
turally determined subsistence level.
As with most general definitions, exceptions are easily identified.
Among them two stand out as being important for market organization in de-
velopment work. In many countries, collective forms of small farm agricul-
ture exist, such as the ejidos in Mexico. Secondly, small-farm agricultural
production may be directed towards the international market, as is often the
case in Africa. Besides pointing out exceptions to the general definition,
various authors feel that any definition of small farm agriculture should
be region and project specific.

Designing Small Farm Credit Policy

It is somewhat difficult to know where investigation and definition of
what is a small farmer ends and where design of policy begins. Various char-
acteristics besides size are ultimately used to determine who will receive
,credit. And, as discussed earlier, the four activities in policy development
are highly interrelated. Each activity is concerned with participation and

-30-

performance criteria. Design of specific policies, however, is most concerned
with who will participate, to what degree and in what manner. Thus, design in
both general and specific objectives must be set forth e.g. which aspects (or
felt needs) of a problem are to be addressed by the credit policy for small
farmers?
Unique social and cultural conditions of small farmers must be understood.
Any communication and adoption difficulties must be anticipated where at all
possible. These are not only language but accessibility and other social and
political barriers unique to a country, region and local. If the small farmer
is exposed to a program, will it be understood by him and will it be adaptable
to his needs and/or can he adapt to the conditions of the program. Thus, he
may know how to participate but opt not to because of risk and uncertainty
among other reasons. He may not trust the system, institutions and agents of
change and they may complicate his participation. The program may impose pro-
hibitive time and adjustment requirements given his unique set of economic and
biological restraints.

The Target Group

After the individual small farmer has been defined, it is beneficial to
further describe and locate him within his "target" group so that specific
credit program needs can be addressed. Included would be the proportion
held by this group of total farms in the area, the total credit activity of
this group relative to total agricultural credit, the absolute level of commer-
cial sales and the levels of inputs used. The small farmers group identifi-
cation should be made in some logical way which would facilitate operation
and control of the programs under consideration. For example, the small
farmers may be grouped by states or provinces, by farming regions such as
valleys, highland or lowland farms, or they may be grouped according to
proximity with marketing centers. Often, the most practical way is to use
census data and identify the target groups according to civil jurisdictions.
Where cooperatives are important and when they have good records on membership
and other activities, it may be possible to separate the target group in that
manner. The cooperative may even participate in a lending program to both
augment effectiveness of the program and reduce distribution costs which are
particularly high relative to loan size for small farmers.

-31-

As another alternative, the target group could be identified through ex-
isting credit institutions. Any program oriented toward these institutions
would have the same advantages of using cooperatives; i.e., they are easily
located and changes in loans and loan activities could be measured. However,
they would not be a reliable source to estimate the numbers and needs of small
farmers which they could reach because they usually avoid doing business with
them due to various risk and collateral concerns. The general conclusion in
establishing a small farmer credit program is that regardless of the institu-
tion used to get credit to the target group, the institution selected should
know the problems and potential of the group.
Again, besides geographic and general measures of classification for
target groups, a problem orientation can be used. This can then focus.on
particularly weak situations and those farm units most hampered by these
situations. For example, where some farmers need help in the purchase and
use of improved seed, or in financing a brief storage program, or constructing
fences to permit livestock production, target groups may be identified.

Dimensions of the Credit Need

The influence of credit, or the lack thereof, on the economic well being
of the particular target audience must be considered as credit policy and
specific programs therein are developed. Does credit provide the stimulus
for economic and social advances in the small farm sector? This is a most
difficult question to answer. Little is known concerning sources of funds,
capital or investment potential for most small farmers. The most successful
programs, such as the Association of Credit and Rural Assistance (ACRA) in
Brazil and the Comilla program in Bangladesh, have not proven that credit is
the answer to the missing link.
D.H. Penny says it is not difficult to discover if farmers need borrowed
capital to undertake profitable investments [4]. If they cannot afford to buy
modern production items or to finance other investments, the situation may be
desperate and require moke drastic action than a credit program. Governments
do not always need to provide credit as many small farmers can afford to fi-
nance some investments from their own resources. Once small farmers have
shown a willingness to save and an ability to iLnvet widely, then credit may

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serve a useful purpose. Penny also says if governments are unwilling to wait,
they will surely misallocate capital resources through their credit programs.
Penny may only be partially correct. Initially, all farmers in traditional
agriculture expand their capital from their own labor, savings and farm improve-
ments. Money credit is not essential. The-question of whether a farmer should
qualify for credit under a special program, only after he has exhibited effi-
cient use of the same, may be self-defeating. Suppose a farmer can save $20
per year after consumption and expenses. Also suppose that a new technological
package costs $200 for the smallest unit. At his current rate of saving, he
would need at least ten years before implementation of the new methods. As
an alternative, he might informally go to other farmers and in a much short-
er period of time borrow enough to buy the new input. If the input causes
profits to increase rapidly, then he could expand further or become a loan
source for other farmers. But if he cannot borrow from other friends or rela-
tives, should he be eligible for a special credit program?
Another criterion which qualifies farmers for programs is the inability
to obtain credit from the usual commercial sources. These farmers may culti-
vate substantial acreages, grow relatively large amounts of specialty crops,
or utilize hired labor. They are faced with difficult financing, management,
and net income structures which put them in a high production and loan risk
category. As such, commercial banks and government agricultural banks reject
their applications for production or other credit.

Small Farmer Concerns and Credit

Most of the discussion to here concerning design has dealt with very
general program level considerations and not specific financial problems of
small farmers. Past experience has shown that various forms of credit evolve
to meet specific felt needs and problems.
Often credit is thought of purely in a production sense. That is, the
credit provides otherwise unavailable resources needed to augment production
and thereby serves to augment the income stream such that in time the loan
can be repaid. Duration of the loan depends usually upon the type of resource
for which credit is often used for fertilizer, seed, fuel and other costs
associated with one crop period. Medium term credit may refer to machinery
and similar intermediate term needs where more than one production period is

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necessary to repay the loan and the limit is less than the useful life of the
machine. Long term credit is used to purchase land and buildings where the
use period extends to a considerable number of years as may also the repayment
schedule. Design of credit programs must carefully assess the production
credit needs relative to short and long term performance goals. Knowledge of
capital productivity and returns to the resources purchased through credit
programs will be necessary to determine where to allocate credit at the mar-
gin. This knowledge is essential at national, regional, local and farm levels.
Besides production credit farmers may need market oriented credit such
that they can store commodities through periods of heavy harvest. Of course,
the nature of the product as well as price movements will dictate the feasi-
bility of this activity. The credit needed could be long term for construc-
tion of farm storage facilities or short terms to cover other financial needs
during one crop and storage period.
Sometimes credit is needed to finance family living expenses both under
foreseen and unforeseen circumstances. To finance higher levels .of consump-
tion on a short term basis may or may not be wise credit policy but usually
this form of credit is less common than production credit. Often these loans
are tied to short term production credit repayment schedules and are considered
to be of an absolute necessity before approval is granted.
Other loans may be made to help small farmers consolidate their entire
credit liability situation. In this manner various loans are brought into
a more efficient and manageable package.

Performance Criteria

The credit policy and particularly programs designed thereunder should
identify performance criteria such that the policy and specific programs are
capable of self-evaluation. This will provide for self-adjustment and align-
ment where necessary because often good programs need refinements before com-
plete success can be achieved. These criteria extend to how loan recipients
are selected and the results after loans have been extended over a period of
time.
Some lending criteria can become very specific and somewhat complex with
respect to data needs. For example, one of the international development
banks recommends a criterion that special credit programs use the ratio of

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assets to piinimum wage paid. For crop farms, if the ratio of total assets
divided by the prevailing minimum annual wage does not exceed 50, the farmer
would qualify for the program. If this ratio is more than fifty, he would
not. Because livestock farms need more investment, the ratio is allowed to
go as high as 100 before the operation is considered too large to be a small
farm.
This is a precise quantitative measurement if there is good information on
minimum wages and up-to-date ways of determining value of farm assets. The
process, however, assumes that the "correct" ratio or cut off level is known.
Asset values tend to combine economic and social worth of the farm. Labor,
or the willingness to pay a certain amount for labor, should have a direct
bearing on the contribution it makes to the farmer's income and profits. In
a practical sense, when many farms are just above or just below the cut off
points, reassessment from year to year based on the ratios can pose a serious
threat to the moral of any program. If a farmer participates in a program
and brings his ratio slightly above the cut off point, should he be disquali-
fied in the second year, denied credit and allowed to fall below the minimum
again.
If farm operations and ownership were located in homogeneous patterns
or areas, R regional average of the total asset minimum annual wage ratio
might serve to determine if all farms in the region or province were eligi-
ble. This may also be the basis for implementing a program in stages of
one or two provinces at a time. A final advantage of using this method would
be in a situation where the program is mostly used to supply intermediate
credit or items purchased with intermediate credit. It is obvious if a small
farmer originally with an asset-labor ratio of less than 50 should improve
his situation and move above 50 after implementing an intermediate investment
(say a tubewell for two or three years), that he would not be eligible- for
credit in the next year's program. Unless adverse situations befall his
operations, there may be no need to re-evaluate his eligibility as a small
farmer.
An additional and most useful tool derived from this method is that it
serves to measure change and evaluate the program. While the program attempts
to measure asset values, labor .costs, and employment, it can easily measure
operating costs, change in net worth, and change in employment on the farm.
These are exactly the items which should be watched closely to see how they

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are changing and what their impact is on the rural community. It is not im-
portant to be concerned initially if gross farm income is twice the average
net income or if total assets are 10 times net income, but it is important
to measure the influence the programs have on these rations, and in what re-
lationships the components change.
Other performance criteria can be proposed. The above ratio system or
modification of such a system is but one possible alternative of many and
serves here as an example of how criteria might be imposed.

National Policy and Small Farmer Credit

Finally, design of small farm credit policy must be consonant with
national agricultural policy. Significant conflicts between the farm level
needs, however, and national policy concerns may prevail. A country desiring
to become self sufficient in wheat production to reduce imports probably is a
high cost wheat producer. Special loans for wheat production may not fit
small farm needs without very significant subsidy programs. Even then farmers
may prefer not to have production credit loans tied to specific products.
Similar decisions must be encountered relative to loans for purchase of spe-
dific inputs, such as fertilizer, versus more general production loans.
Some final questions to answer in credit program design are:
1. Who is the target group? What have we learned from the investi-
gation activity?
2. What are the objectives of the policy to provide credit to small
farmers? Are they to enable present levels of activity to con-
tinue without demise? Or to augment production and productivity?
Or to increase living standards? Or to decrease production costs?
Or to imporve market activities? Or to help small farmers grow
larger?
3. What institutional objectives are tied to the small farm credit
policy? Is cooperative development an objective? Do social over-
head facilities need improvement?
4. What are the specific terms of the loans? Will they differ by size
category? Will there be several categories? When or at what size,
income level and so on will a small farmer. "graduate"?
5. What complimentary programs are necessary for a successful small
farm credit program in the area of concern?

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6. What considerations are necessary relative to acceptance and use
of credit and the resources purchased therefrom? Are there serious
communication, attitudinal and adoption barriers to overcome within
governmental change institutions and the small farm target group?
7. Is the design something that can be implemented? What specific
institutes and agencies may be needed? Are they available? If
not can some be developed for the task or identified among existing
institutions?

Evaluating Credit Policy and Program Alternatives

Usually there are numerous paths to an objective. The activity of
evaluation challenges policy makers to determine which alternative most
appropriately meets the major objectives of the policy. In this considera-
tion a balance is sought between costs and an ability of each alternative.to
optimally meet the needs specified in the problem. For example will the less
costly general "untied" and "unsupervised" credit program be more successful
per unit of investment than the more costly, tightly administered and super-
vised package program. Is one less costly and possibly more effective than
another yet too time consuming relative to the urgency of the problem? What
are the secondary costs and benefits of the various alternatives?
Evaluation at this early stage should provide some guidelines and ex-
perience for evaluation the policy finally selected and placed into effect.
Thus, a more precise discussion of evaluation is given later under program
evaluation.

Selecting A Small Farm Credit Policy

Of course there is no unique policy yet one finally must be selected.
The evaluation activity itself may provide sufficient new evidence such that
various combinations of alternatives can be achieved to more nearly assure
success. Also as stated previously and shown in Figure 1, there is a continuous
flow among the activities of investigation, design evaluation and selection
or rejection. Thus during selection further evidence may be sought such that
the design may be altered slightly.

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The final policy selected then must answer the series of questions set
forth in the discussion of design, and be the most effective and efficient
means of resolving the problem for which it is designed.

A need for efficient, timely, effective and responsive policies implies
the need for a well structured and employed policy formation process. Stages
in the process include goal specification, problem identification, policy de-
velopment, program implementation, and policy and program evaluation. Compo-
nents then within these stages encompass inputs to the process including facts,
beliefs, values, goals and felt needs, and outputs including problems, alterna-
tive policies, action programs, results, and performance criteria. The process
also includes three flows relating directly to the stages which include: commu-
nication to a goal-problem consensus; research, design, evaluation and rejec-
tion or selection; and final evaluation after implementation with feedback to
the goal-problem consensus flow activity.
This paper has focused primarily on agricultural policy formation, leaving
implementation and evaluation to further writings. Policy development, of
course, must carefully consider implementation and impact. Credit policy and
programming is a complex set of interactions and concerns extending from the
national policy level down to individual small farmer in his management deci-
sions. With this complexity comes a need for broad training throughout the
processes of credit policy formation and implementation. Thus, this chapter
and even this text are inadequate to cover the entire spectrum. Yet one 'should
be acutely aware of the important vertical interrelationship extending from
the national level to the farm level and from stage to stage in the policy
development, implementation and evaluation process.
Goal specification is an important stage in the policy formation process.
Facts, beliefs, values, and goals themselves contributeto this stage while
giving insight into felt needs and finally problems, in this case one of small
farm finance. Facts are employed to describe national and farm level charac-
teristics important to the small farm sector. Beliefs tend to focus on the
role of agriculture and small farmers in the national economy, resource use
in both the urban and rural sectors, and the lagging position of the small
farm sector in the development process. Values tend to center around the rights

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of individuals, the desires for growth and development, the quest for sta-
bility and security, forms of organization and representation, and inter-
personal and intergroup behavior. From these facts, beliefs and values,
individual and finally joint goals emerge to specifically define priorities
of groups or societies such as to increase per capital income, to educate
small farmers and to increase agricultural sector productivity. As these
goals are not met felt needs arise in such a manner and strength that policy
.action is sought.
At this point problem identification is necessary to investigate why
certain goals are unmet and why a group felt need has emerged. In this con-
text we have identified the lack of small farm financial strength to be a
problem where one possible and sometimes successful solution has been credit.
Developing credit policy for small farmers then requires careful consid-
eration of numerous factors including the nature of the target group, the
specific problems and objectives associated with that group, the institutional
arrangements surrounding the target group, the need for complimentary programs,
the adoption and acceptance conditions for small farmers in using the credit,
and the need for a policy that can be implemented with success.

[2] Harrison, Kelly and Kenneth Shivedel. "Marketing Problems Associated
with Small Farm Agriculture." Report on an ADC/RTN Seminar held
at Michigan State University, June 7-8, 1974. N.Y: The Agricultural
Development Council, Inc. Nov. 1974.